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Bach owners and boaties to be affected by changes to mixed use assets rules.

In the latest budget the Government announced its intention to change the rules around the deductibility of costs relating to assets, such as holiday homes, yachts, cars and aircraft, that are both used by their owners and also rented out for income.

Owners will no longer be able to claim up to 90 per cent deductions on running costs but will have to apportion any tax deductions based on the actual income earned and the private use of the asset. For example, owners who rent out their holiday home for 30 days in a year and use it themselves for 30 days in a year will be able to claim a deduction for 50 per cent of their general costs, rather than the 90 per cent as it stands now.

The new rules will apply to any asset that is;

Used privately by the owner, close relative or associate; and

Is also used to generate income; and

Is unused for at least 62 days a year; and

Costs more than $50,000

The Government proposes that some losses from mixed use assets will be ring-fenced meaning they cannot be offset against other income (e.g. salary). The ring fencing will occur if the gross income derived from the asset in a year does not exceed 2% of the cost of the asset, or rateable value if land. Such losses can be carried forward and offset against any future income earned from that specific asset.

New proposals will allow owners of mixed use assets to opt out of the rules if the gross income generated from the asset is less than $1,000, or if the asset produces a net loss. Opting out will make the income exempt and any expenses non-deductible.

The new rules are to take effect from the 2014 income year, beginning 1st April 2013.

If you have any questions please feel free to contact Johnston Associates South Chartered Accountants in Nelson or Havelock.